support is necessary. if the economy does not improve along the lines that we expect, we'll provide additional support. if financial conditions evolve in a way that's inconsistent with economic recovery, we will provide support. but we're -- and in that way, we hope to increase confidence both among market participants, but also among investors and private consumers and other people in the economy. but again, your point is well taken that we are in a position where the simple adjustment by 25 basis points in the federal funds rate seems like a long-ago experience. and we are in a more complex type of situation. but we are determined to be as clear as we can, and we hope that you and your listeners and the markets will all be able to follow what we're saying. >> we'll go to donna and then go to peter. >> donna boreack with american

banker. next month will be the anniversary of the dodd-franken act. can you provide us an update on where we stand with the rule makings and, also, are you still optimistic we will see the rules completed by the end of this year? >> it's certainly true that it's taken time to do these regulations. there are a number of reasons for that. first is that they are inherently, many of them, quite complicated. the voca rule involves subtle distinctions between hedging and market making and proprietary trading. a second reason is that many of them involve multiple agencies, which have to coordinate, cooperate, and agree on language. i think the rule is six agencies are involved in making that rule. and the third fact, the third and basic issue, we really have

to do our homework. we have to get these right. that means having extended comment periods, getting lots of information from the public, and then, you know, reviewing those comments and doing all we can to make sure we're responsive to the many, many concerns and suggestions. so it does take time. i think it's a little unfair to say, well, only 30% of the rules have been completed, because most of the rules, even if they haven't been completed, are now very far advanced. that's true for the major rules. we are very close, for example, to completing basl-3. we have made a good bit of progress on the voca rule, and i do anticipate that being done this year. we were making additional program on the 165, 166 advisory rules on the capital surcharges. these are all things that will be coming relatively soon, at least during the current year. of course, once they are out there, then it will still take sometime to be implemented for

financial institutions to change their practices and so on, and so on. i would also emphasize, though, that even as this is going on, that we are not ignoring the health and safety of the banking system, for example. i mean, since 2009, we've been doing these very rigorous stress tests, which are part of the dodd-frank rules. and the amount of capital that u.s. banks hold has roughly doubled, the largest banks, since 2009. indeed, the largest banks now appear, most of them, either to be basl-3 compliant or pretty close to compliance. we're working with the banks to ensure their safety, help them move in the directions that they know they're going to have to be going, even as the rules themselves are being finalized. so it's an ongoing process, but i expect to see more rapid completion, you know, going forward in the next few quarters.

>> peter barnes with fox business. sir, one of the highlights of the kansas city conference every year are remarks by the chairman, you. you're not going this year. we've heard it's because you have a conflict in your personal schedule. but some have taken that as a sign that you may not be staying on the job for another term. comment on that? and also give us more explanation as to why you're not going to be in jackson hole for the first time? >> well, as i said, i'm not going to comment on my personal plans. i will say this. i think there's a perception that the jackson hole conference is a federal reserve systemwide conference. it's not. it's a conference sponsored by one of the 12 reserve banks. every one of the 12 reserve banks has conferences, has meetings, and this is the one i've gone to the most, probably of any reserve bank. so i think it's not inappropriate to go to different

conferences, different meetings, and to essentially meet all of the constituents that i have in these different reserve banks. so that's one reason, certainly. >> steve beckner, mr. chairman. a number of your colleagues expect the unemployment rate to get down to 6.5% next year, which is your threshold for considering raising the funds rate. and yet the fmoc said it expects to keep the rates accommodative after asset purchases and after the recovery has strengthened, and yet, here we are the middle of 2013, you have not even begun to scale back asset purchases. i mean, you partially addressed

this. but could there be a conflict between on the one hand the asset purchase program, on the other hand the funds rate guidance policy? could they conflict? could you perhaps elaborate -- >> well, i certainly hope the unemployment rate comes down so fast that this becomes a problem. i guess i would point out a couple of things. one is that, of course, you know, there's a range of estimates, and they're all based on each individual's idea of optimal policy. so the policy assumptions may not be the same. so it's true that some are as low as 6.5. as i said in my earlier answer, that's a threshold, not a trigger. so evidently, if you, you know, look at the policy expectations that are given in the dot diagram, you'll see that the very strong majority of fmoc participants expect rates to be quite low at the end of 2015. so that's not inconsistent. that's just saying that people are looking at a variety -- a

variety of factors, including inflation, which is predicted to be quite low. and other perhaps labor market factors and thinking about when it would be appropriate to start increasing rates. >> thank you, sir. first of all, i should tell you that your analogy to landing the economy on an aircraft carrier worried me a little bit, because from personal experience, i find that it's always a little bit jarring to land on an aircraft carrier. but i wanted to talk about mortgage-backed securities. you mentioned during your comments here that if i understood correctly you are not going to dispose of the mortgage backed securities during this period of normalization. i've heard many people on wall street and elsewhere say that right now the federal reserve is the market for mortgage-backed

securities. which means that it's kind of a warped market right now. i'm just wondering how focused are you on mortgage-backed securities and this larger world market, which what used to be a world market for mortgage-backed securities? i guess what i'm saying, has the ground shifted from under us in terms of the mortgage-backed security world on a permanent basis, or for at least a long-term basis because of the devastating nature of what happened a few years ago? >> well, we are still only a fraction of the total holdings of mortgage-backed securities, but more relevant, as part of our assessment of our ongoing assessment of the potential costs of our various asset purchase programs, we pay very close attention to market functioning. and our assessment is that the

mbs market is still quite a healthy market in terms of the spreads, in terms of execution times, in terms of the number of people on both sides of the market. you know, there are reits now that are building up their mbs portfolios. there are plenty of real money investors holding mbs. so, you know, if the market was really breaking down in some way, that would be a factor we'd have to take into account. but our assessment -- of course, we're in that market quite a bit, so we have a lot of information about it -- our assessment is that that market is still working quite well, and that our purchases are not disrupting the normal price discovery and liquidity functions of that market. i think that the events of five years ago obviously do have a big long-term effect. there are bills in congress that would change reform the gses, for example, and ultimately

would change the market for mortgage-backed securities, perhaps increasing the amount of private placements or changing the whole institutional structure of that market. so we may end up holding some securities, which are in some sense left over from a previous -- a previous era at some point. but nevertheless, you know, for the time being, they are the mortgage-backed security market, freddie and fannie are basically it, and we're allowed to legally buy and own those securities, and we found it useful to do that. and we believe it's contributed to lower mortgage rates and a stronger housing market. so that's been our rationale, and just, again, to come back to your question. we do not see any significant deterioration in market functioning. if there's things you can point us to, we'd be very interested. >> well, let me follow up, just one thing. in terms of the government backing through the gses of mortgage-backed securities, is

there a concern -- a legitimate concern that without government backing of this market in some way, that because the private market -- it seems to move with much more rapidity of the government purchases, that moving the government out of the backup role on mortgage-backed securities would be a real problem, or really change the nature of getting a mortgage in america? some people say, you know, if the government wasn't behind it, it would mean the end of the 30-year mortgage as we know it. >> well, these issues are being debated. there's a number of bills in congress which would change the gses, would eliminate them in some cases, or would place them with backstop government support, as opposed to 100% government credit guarantees. so these are debates that we're all having about the future of the u.s. mortgage market.

i think it's entirely possible that if there's major change in the government's role in the mortgage market that we might see a different structure in mortgages. you know, other countries have different structures, and they have, in many cases, the same or similar homeownership rates that we do. so it's possible that we may find that a different structure is better for some people. >> thank you, mr. chairman. greg robb, marketwatch.com. i was wondering if you could go back over about the plans for tapering later this year. and why isn't tapering tightening? it seems many people in the markets, just as soon as you talk taper, will taper, are just going to push forward when they think the first rate hike will come. thank you. >> well, as i tried to explain

in my opening remarks, our plans depend on the economic scenario and how it evolves. and what i tried to do is explain how our asset purchases would evolve if sort of the modal, the most likely forecast were to, in fact, take place. of course, it won't exactly take place. something no doubt will happen. again, our basic forecast is one which is basically, as was pointed out earlier, a moderately optimistic forecast where growth picks up, as we pass through this period of fiscal restraint. where unemployment continues to fall at a gradual pace, as it has been since last september. we have made some progress since last september. and inflation rises slowly towards 2%. those are the conditions that define this sort of baseline forecast. in that case, then, as i described it, we would expect probably to slow or moderate purchases sometime later this

year, and then through the middle of -- through the early part of next year, and ending in that scenario, somewhere in the middle of the year. again, though, it's very important to understand that that's -- if we do that, that would basically say we've had a relatively decent economic outcome in terms of sustained improvement in growth and unemployment. if things are worse, we would do more. if things are better, we will do less. i think i would answer your other question, i would draw the analogy, if the federal reserve in normal times lowers the federal funds rate by 25 basis points, but some traders think that we're expecting 50 basis points, then there might be a sense that the financial conditions have tightened somewhat. but nevertheless, i think you would say that the fed cut the funds rate by 25 basis points, that that was an easing of policy. by the same token, as long as we're buying assets, we're adding to our holdings. we do believe, although there's

room for debate, we believe the primary effect of our purchases is through the stock that we hold, because that stock has been withdrawn from markets and the prices of those assets have to adjust to balance supply and demand, and we've taken out some of the supply. so the prices go up, the yields go down. so that seems to be consistent with the idea that we're still adding liquidity, we're still adding accommodation to the system. >> ryan, "the economist." i guess blase the committee seems, with the exception of president bullard, inflation looks remarkably low on both headline, pce, epi, your

projections have it rising, the core pce, rising at most 2% in 2015. you say inflation expectations have remained in the range that the fed has traditionally been comfortable with, but they have fallen by a good half percentage point. -- concerned about declines in inflation like this. and wouldn't you say even if you're happy with the pace of labor market recovery, other things equal, this performance suggests you shouldn't be pushing harder on the accelerator? >> i don't disagree with anything you said. i think low inflation that's too low is a problem. it increases the risk of deflation. it raises real interest rates. it means that debt deleveraging takes place more slowly. now, there's always issues about why is it low. and as i pointed out, there are

a few reasons that are probably not that meaningful economically. for example, the temporary movement in medical prices, the temporary movements in nonmarket prices, things of that sort. i mean, after all, the cpi is somewhat higher. and so, we expect inflation to come back up. that's our forecast. but i don't want -- i think it's entirely wrong to say we're not concerned about it. we are concerned about it. we would like to get inflation up to our target. and that will be a factor in our thinking about the thresholds. it'll be a factor in our thinking about asset purchases. and, you know, we've got to do a mandate. it's maximum employment and price stability, and there's a reason why we define price stability as a positive inflation rate. not zero. because we believe in order to best maximize the mandate, we need to have enough inflation so that there is, in fact, you know, some room for real interest rates to move. so i don't disagree with your

basic argument. >> thanks, mr. chairman. since you referred to mr. hilsenrath, is he the power behind the throne? those are one of the questions we've all wanted to ask. you mentioned on several occasions now the quantitative easing is designed to drive down the yields, force more risk taking that flows through the economy. there'd been debate a couple of years ago about inflating commodity prices. inflation as a whole is subdued, but oil prices are anchored somewhere around $99, $93 to 99. we were told once we have domestic production, record production, it would be a signal to bring prices down. it hasn't happened. brazil has people in the streets because of inflation. to what extent do you think quantitative easing is actually inflating commodity prices, and

have you been able to filter that out? and any thoughts on wage growth and why that's been so flat, when everything else seems to be doing good in the economy? >> well, as i recall, i believe i have this right, when we introduced the second round of l saps, properly known in qe-2 i think in november 2010, there was a lot of increase in commodity prices at that time, and there was a lot of complaining that the fed is pumping up commodity prices, and that's a negative for people around the world. and we argued at the time that the effects of the federal reserve's policy on global commodity prices was probably pretty small and that it operated to the extent it did have an effect, it operated through mostly growth expectations. that is a stronger global economy tends to drive up commodity prices. this time around, we've purchased and are in the process of purchasing a lot more than we

did in so-called qe 2. we haven't really seen much increase in commodity prices. commodity prices are way off their peaks of early last year. oil is a little bit different from others in that it's kind of hung up. but many other commodity prices have fallen further, and the reason i would give for that is that the merging markets, china, the rest of asia, and some other parts of the world, plus europe, of course, are softer. and so, global commodity demand is weaker and that explains, i think, the bulk of why commodity prices have not risen so much. i think that's consistent with our story that the effect of asset purchases and commodity prices, i'm not saying it's zero, but i don't think it's nearly as big as some folks have suggested. in terms of wages, i think that's mostly consistent with our view that unemployment at

7.6% is still pretty far from where we should be satisfied. maximum employment, we think, is, again, between 5% and 6%, although these are very difficult numbers to estimate. so very weak wage growth except in a few places, in a few narrow occupations, is indicative to me of a labor market that remains quite slack, and where, you know, that justifies, i think, together with low inflation, justifies why we are maintaining highly accommodative policy. >> mr. chairman, kate davidson from politico. the s.e.c.'s money market fund proposal is far less comprehensive than the plan that you and the financial stability of the council endorsed. do you think they should defer to the s.e.c. or still press for more to be done? >> i'm very glad to see the s.e.c. has taken up money market reform.

it is by far the best outcome. it's the area where they have the expertise and where they have the experience. in terms of their actual proposal they've put out, of course, a proposal for comment, one of their two proposals, the floating nav, the floating asset value, is qualitatively similar to one of the proposals that was in the fsoc suggestions. we have not yet reviewed this in enough detail to give a view, but i hope that -- i know for sure that by putting out a floating nav proposal they're moving in the right direction, and i'm hopeful that what comes out is sufficient to meet the important need of stabilizing the money market funds.

>> thank you, chairman. recently we've seen great (unintelligible) in japanese market, equity, foreign exchange. some say this is due to uncertainty to the monetary direction. but others say this is due to lack of confidence through the bank of japan's monetary policy. so how do you view the bank of japan's efforts? do you still support bank of japan policy? and another question is how much do you pay attention to the effect to the international market when you consider exit strategy? >> well, i think the volatility is mostly linked to the bank of japan's efforts, and that would seem logical since an earlier

episodes, when the fed was doing asset purchases and the boj was not doing anything, there was no volatility. so sort of seems logical that the change here is the change in boj policy. the boj is fighting against a very difficult entrenched deflation. of course, deflation has been a problem in japan for many, many years, which means that expectations are very much -- the public's expectations are for continuing deflation, and, therefore, takes very aggressive policies to break those expectations and to get inflation up to the 2% target that the bank of japan has set. so that's why it's difficult. they've had to be very aggressive. that aggressiveness in the early stages of this process where investors are still learning about the boj's reaction function, it's not all that surprising that there's -- there's volatility. also, the jgb markets are less liquid than, say, the treasury market, for example. so i think it's something they

need to pay close attention to. but on the whole, i think that it is important for japan to attack deflation, and i also agree with the three arrows, the idea that besides breaking deflation is important to address fiscal and structural issues as well. so i'm supportive of my colleague, mr. karoda and supportive of what japan is doing, even though it has effects on our economy as well. there are a lot of reasons why emerging markets and other countries experience volatility. some of them have to do with changes in growth expectations. for example, we've seen a lot of changes in growth patterns in the emerging markets recently. some of it has to do with risk-on, risk-off behavior. some of it probably has to do with advanced economies, which includes, of course, the united states. we do pay attention to that.

i frequently meet with colleagues from emerging markets, the g-20 for example, and we discuss these issues. i think the right way to think about it is that as the g-7 and the g-20 both have noted, that what u.s. monetary policy like that of japan is trying to do is trying to help this economy grow. and a global recovery, a global -- strong global growth depends very much on the u.s. growing at a reasonable rate. and so, while there is some effect, i think the net effect, including a stronger u.s. economy, is on the whole positive, and i think most of my colleagues in emerging markets recognize that. that being said, anything we can do through communication or other means to try to minimize any overflow effects or side effects, we will certainly do.

>> hello, mr. chairman. mark hamrick with bankrate.com. you talked about being in unchartered territory with policies, and the mix from two years ago, and insofar as the fmoc decided not to include the information about the asset purchases today, how do you walk that fine line? and why did the fmoc decide to leave it to you to describe it as opposed to putting it down in its own words? thank you. >> again, we don't think of this as a change in policy. what i was deputized to do, if you will, was to try to make somewhat clearer the implications of our existing policy and to try to explain better how the policy would evolve in various economic scenarios. and that's a little bit difficult to put into, you know,

a very terse fmoc statement. now, that being said, going forward, i think that some of this -- some of these elements to the extent that we can make them useful will begin to appear in the fmoc statements. it's entirely possible. but it seemed like the right tactic in this case to explain these fairly subtle contingencies in a context where i could answer questions and respond to any misunderstandings that might occur. >> thank you. >> thank you. >> okay, chairman ben bernanke finishing up his news conference. the whole world waiting for some sort of clarification about the fed's intentions on the massive bond-buying program that's been under way for a couple of years now to try to keep interest rates at record lows. and i think we have a little better understanding, or clearer understanding of their

intentions going down the road. don't you? >> we certainly do. we have the clarity. and as soon as that comment came out -- i'm going to read you the comment, the market took a swoon. and now we're looking at a decline of 110 points. 9 chairman said if the incoming data are broadly consistent with this forecast, the committee current lip anticipates it would be appropriate to mad rate the monthly purchases later this year. and with that, the market took a dive. down 109 points. we should point out that we are off of the worst levels of the day. they said if the subsequent data remain broadly aligned with our current expectations for the economy, we would continue to reduce the pace of purchases in measured steps through the first half of next year. ending purchases around midyear. >> ending purchases around midyear. now, that's not raising interest rates. but it is turning the spigot off at that point. and you're right. stocks and bonds are trading lower at this hour. >> so presumably, they begin tapering, perhaps taking the $85 billion number down to

$65 billion, and down and down, and then perhaps beginning in september, it looks like that's what the market is expecting. but, bill, i wonder what is new here? so many expected that the economy is, in fact, improving, and we would likely see a tapering at the end of the year. so maybe that's one of the reasons that the thinking actually is not as negative as soon as he made the statement. >> right. let's talk about it. we welcome you to "closing bell." i'm bill griffeth, with maria bartiromo. we have steve forbes from forbes media is with us, so is gary kamensky, vice chair at morgan stanley, mark olsen, richard wolf, now professor of economics at the new school, and our own rick santelli. i'm going to start with rick santelli, if i may. your sense of the market response, stocks and bonds. the yield on that 10-year is 2.32, highest in several months, and stocks have moved lower. what do you make of that, rick? >> first, let's lay the

groundwork. we are at current levels at a 1.22 five-year, the highest yields should we close here since august of 2011. the 10-year, 2.32, should it close here, the highest since march of 2012. so it pushed its compact from 14 to 15 months, and the 30-year bond, a boatload of volatility, still stuck around a 14-month comp going back to april of 2012. having said that, i think you and maria did a good job of looking at the rorschach and interpreting the statements that were made that caused the stock market to kind of play the game that the treasury was playing even before the statement was read. but here's my one thing i want to bring to the table. i've gotten at least 85 e-mails since the statement was read by sources ranging from floor traders to hedge funds to bond managers, anecdotally, i know, but every one says this is a great buy of treasuries, moc, mark it on close, yet we close at the worst levels of the day.

i think the fed has the tiger by the tail, and as much as they think they have this figured out, these markets can get a mind of their own, and the best way to get a good sell-off is push fresh longs in bad locations. >> i guess that's what we're seeing now. steve forbes, jump in here. give me your thoughts on what the fed said. was it appropriate the market sold off on that suggestion that later on this year the tapering begins? >> actually, it's going to be good for the market long term if the federal reserve tapers off. that's going to mean less distortion in the credit markets, greater flow of credit to small companies, especially unincorporated businesses. and so, it would be a positive. if market does well when the economy does well. this is just a short-term thing of people addicted to sugar, get them off the sugar, they'll be fine. >> do you think job growth is strong enough? the last four reports, the average growth rate has been about 194,000 jobs. chairman bernanke was suggesting, you know, he's throwing out the caveat that we're talking about a timetable of starting the tapering later this year, assuming that that kind of job growth continues.

do you think it will? >> i think, actually, he's doing better, if you look at the household survey, which means it's small businesses that may be more robust than we think. this whole premise that the federal reserve is helping the economy by doing what it's doing, i think needs to be closely re-examined. it's sent credit to things like fannie and freddie, from the federal government to big companies, but it also means that it's been a slow trickle of credit until recently, to smaller businesses, which are the real job creators in this economy. and you look at insurance rates with low interest rates. those are under pressure. >> yeah. >> we'll get to steve liesman in a second. i have to say, he made it very clear, once again, maria and i both noted this, he is picking on fiscal policy of the united states government as being a drag on the economy. >> yeah. >> well, when you fail, you blame somebody else. that's always the political trick. >> you think he has failed? >> i think he has. after the crisis of 2008, what he's done is hurt the recovery, not helped it. >> let me bring in steve liesman here.

i want to point out that the issue of selling off on the idea that the economy is getting better does make people scratch their heads. i mean, earlier -- an earlier comment from the chairman said the committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. this compares to a may statement that was a lot more hawkish than that. let's get to steve liesman. he just got out of the meeting. you heard him ask those questions. what was your assessment today, steve? >> reporter: maria, you can tell by looking at me, i've done head scratching. i agree with you completely on that. i don't understand why people would be -- and, by the way, the more i thought about it in the meeting, i really thought what bernanke said was like a bombshell. but then i thought about our fed survey. everything bernanke said about the outlook is already conventional wisdom in the market. bernanke did not say anything about what is going to happen to policy that is not picked off in our statements, other statements. what are we talking about? the idea that qe would begin to

be reduced towards the end of the year and probably end the middle of next year. our cnbc survey says qe ends june, july 2014. period, end of story. i see the market coming back here, maybe says, wait a second, we knew that already. we already thought that would happen. the only bizarre thing that everybody was scratching their heads about, more of the head-scratching, maria, was the idea of how this happened, this idea that somehow bernanke was deputized to go out and talk about policy that was not really policy. and my question was, was there a vote that went on -- >> right, right. >> reporter: -- but he wouldn't say. that's the strange part of it. we don't understand the process the fed is making these decisions under. >> he said he was trying to clarify -- they were trying to clarify -- let's face it. we've had a lot of debate lately, a lot of volatility in the market because there's a vast disagreement on exactly what the fed's intentions are, and his answer to your question was very interesting, that they're trying to clarify what the intentions are down the road. gary kamensky, you're the trader. what do you make of the market

response and what the fed said here today? >> not a trader, bill. >> you were. you were. >> you think like a trader. >> you hit the most important thing, i thought, which is they didn't talk about interest rates going up. so i wanted to see what the market is pricing in and the fed funds future now says there's 100% probability of rate increases, but not till 2015. and so, the idea and the conversation about taper as it relates to asset arbitrage, selling bonds to buy stocks or selling stocks to buy bonds, that doesn't happen with a hypothetical taper, as rick knows. that happens when you actually have interest rates going up, and you're in a tightening cycle. and i didn't hear anything today about tightening cycle, and that is what true traders and institutional -- >> and, gary -- >> can 2% get you to take money out of stocks? 2%? >> no. i'm sorry -- steve, did you say something, steve? >> reporter: yeah, no, i was going to say, does it make a difference that you thought something was going to happen

and then somebody tells you it's going to happen, the guy who can make it happen? does that change the orientation to what you thought would happen? it seems like the markets are spooked by the idea that bernanke told them the forecast they expect to already happen. >> wow. we were right after all. very surprised. >> it's basically a short-term reaction. steve forbes made the most important point here you'll start to hear people say very soon, bill, maria, that stocks do better when interest rates are going up. something like 66% of the time stocks outperform all other assets in a rising interest rate environment. >> just not today. >> just not today. >> jamie diamond said they'll make $2 billion on every basis point move in rates, actually. >> right. >> the banks obviously have been in a tough spot here with the low rates. steve, let me get your take on -- you said the federal reserve has failed. you said bernanke has failed. so what now? the economic conditions have improved. how can you say he's failed if the economic conditions have improved? >> because look at the pace of recovery. after every sharp downturn in american history, including the great depression, at least

initially you get a sharp upturn, and the question becomes can you sustain it? we never got a sharp upturn. in 2010, 2011, 2012, we've been piddling around 1.5%, 2%. that's never happened in american history. so when you look at past patterns, this has been a punk recovery. i think a big part of it is, it's distorted, with the best intentions, the credit markets. >> talking like a man on his way out? >> i think the president slapped him in the face and said, you're out. chicago style. >> wait, say that again. what do you mean slapped him in the face? >> the president of the united states doing what he did in that charlie rose interview, there was about all the subtlety of a chicago guy making you an offer you can't refuse, saying you're on the way out, you've said -- you stayed too long, you have stayed too long. i mean, hammering him on the head, that's the only thing he didn't do. >> i thought he looked more relax today than he has in a while. we haven't forgotten about you richard wolf. we apologize for the delay. what do you make of what you heard from the fed today and the market response? >> i have a completely different

take from steve forbes, but i do agree we didn't hear much that was new. interest rates will go up if the conditions warrant, they'll go down if the conditions warrant. and then we're told to be interested in what might happen in 2015, which nobody in their right mind would take the dare to produce. i take a longer look. i see an economic system that isn't working real well. you know, we pride ourselves in our papers saying to the europeans, you know you have a terrible problem, even though a part of your society, germany, is in really good shape. we ought to do the same for ourselves. our stock markets, our housing markets are up, but the rest of our economy is in terrible shape. we're not even halfway back to the level of unemployment we had in 2007. >> isn't that play -- doesn't that play into steve forbes' argument, though? >> that's what steve just said. >> no, the reason that it doesn't is the solution is not to blame the federal reserve. they're one of the few forces that is trying to do something within their frame, being held

back by other circumstances. that's what we ought to be looking at. >> that's true. let's bring in mark olson. let me ask mark olson the question that maria was asking. with the yield on the 10-year at 2.32, are you inclined to sell stocks like that as the market seems to be doing today? >> well, i think the yield on the 10-year -- on the 10-year t is a function of supply and demand, and that's because the market had anticipated something that isn't happening. but i think, bill, your opening comment for this section was the clarification. this essentially -- what chairman bernanke did today was clarify some of the -- some of the points he made when he testified may 22nd. but i think it's important to remember that the only thing he's addressing in this, today, was -- what was the pace of change on the qe 3. he is not talking about unwinding qe 2 or qe 1. and i think that the important point is that it's going to go all the way out to 2015 before

we see a reduction in interest rates. or an increase in interest rates. >> right, right. you agree, gary? >> that's the pivotal point. again, if you're a major asset allocator trying to make a decision on quantitative models, it's about actual rise in interest rates, when you start to factor that into a dividend discount model. that's not being pushed out definitively until 2015. >> if you look at -- if you look at today's statement and compare it -- if you look at today's statement and compare it to may, there is fewer changes in the words today from the last day than there has been for many, many meetings. >> right. but a little more hawkish. >> -- but we have a long way to go. >> mark, i have to push back. >> go ahead, steve. >> i have to push back on that. the idea of a central bank saying the risks have diminished is a classic signal that policy is changing. it's the first time they've

explicitly used the kind of language, mark, you were involved with, by the way. you were at the fmoc when those sorts of statements were just the sort of things that would signal future policy, when risks go down, market -- policy tends to tighten. >> yeah. >> i mean, it's the beginning -- >> yeah, steve -- >> beginning of the turning of the cruise ship here, right? go ahead, mark. >> the distinction between now and then is that we were not specifying in our statement a 2.5 -- a 6.5% unemployment rate or a 2% inflation rate. they are now being very specific in terms of their guidelines, even though the chairman is describing that as a threshold and not a trigger. >> yeah. >> so i think there's a different emphasis than a few years ago. >> just a -- it's a tiny bit more hawkish this month versus may. steve, you get the last word. >> last word, steve forbes. >> i think the big question is, why, with more than $2 trillion on the balance sheet, why hasn't more gone into the economy? i think you have a regulatory problem and a real skew in the credit markets.

you don't cure that, this economy will be subpar. >> all of the cash that's sitting on the balance sheets, what are -- what has to be done to get that off of there? >> get the credit markets working again, which means allowing the real price on credit to smaller businesses and not suppressing interest rates. >> that's absolutely incorrect. that's absolutely incorrect. it has to -- >> -- interest rates hurts the credit markets, just like rent control skews the housing markets. >> what is incorrect, mark? >> the market goes down in clear understanding that if the fed withdraws the life support that holds this economy up, we're in deep trouble. if that's being signaled, then you can see in the market the anxiety rising and for good reason. >> oh, there's all kinds of -- >> man, i tell you, if he is right, we're in deep trouble. >> you going to take that sitting down? >> -- when you remove rent control, housing markets flourish, the economy will flourish when you get credit markets working. >> when you remove support --

when you remove the government support in the housing market, nobody can get a mortgage. >> when the price controls ever work, they never worked for 3,000 years. they won't work now and haven't. it's a punk recovery. >> -- a history course with that kind of an argument. >> it's getting -- >> i'll be glad to take it to you. >> it's getting good. >> -- santelli this quiet. i guess things have changed since i -- >> yeah, you should have been -- you should have been watching tv earlier today. thanks everybody. appreciate your time. we have a market that is down in the triple digits, down 140 points with another 15 minutes. it took the market a while to digest what bernanke said, but when he was that specific, basically saying if economic conditions continue as we expect, then we would begin changing policies later this year. that's when the markets took a dive. >> we'll come back and talk to top money managers about how they would be investing based on this big fed announcement when we come back. stay tuned.

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aflac's gonna help take care of his expenses. and us...we're gonna get him back in fighting shape. ♪ [ male announcer ] see what's happening behind the scenes at aflac.com. welcome back. we want to point out that we're at once again at session lows. down 182 points, as we have been reporting, the federal reserve basically suggesting today that they could begin the tapering of

the quantitative easing later this year. a lot of people thinking that's september. >> ironically, we had just heard that the bias for the close was switching to the buy side, just slightly. small, a number of stocks to be bought, but that's not happening nowment we're down 185 points. >> and that's a low. >> even as yields on the 10-year go higher. we're at the high right now. joining us with their thoughts on what to do about this, rich bernstein of richard bernstein advisers, jason with glenn mead and craig from mainstay capital management. rich, what did you hear and why are both stocks and bonds going lower today, do you think? >> well, bill, you know, mr. bernanke may wonder why he tries to communicate, because clearly his communication the past -- the board's communication the past several weeks is actually going to undo what they hope is happening. i mean, if we have rising interest rates, rising mortgage rates, falling stock markets, there goes the wealth effect, there goes the housing effect that mr. bernanke was referring

to. i think he's kind of caught in an interesting catch 22 here in terms of the communication that maybe he thought he would -- the words he thought he would communicate or the meaning he thought he was going to communicate and actually what was interpreted. >> right. >> david, why are we not celebrating the other part of the statement, and that is the committee continues to see downside risks to the economic outlook, but the committee has seized the downside risk to the labor market as having diminished since the fall. why are we not celebrating better economic and more improvements in the economy in. >> good question. >> maybe it's a little bit of buy the rumor and sell the news. we had the market up the last couple of days. we had to expect there would be this kind of reaction when he finally laid out a pattern, which he did today, or a framework, to end quantitative easing. so that genie is out of the bottle. that announcement has been made. it's been articulated. this is a one-day move in the markets. we've had five, six days of

100-point plus moves, so not concerned about it. we think the market will move higher from here. >> jason, you going to buy this dip? >> yeah, look, i think at this point in time, bernanke is effectively playing with house money, with how far the financial markets have run through last year and this year. he has more than enough wealth effect in the system for him to allow a little bit of a pullback. that creates buying opportunities for those investors that are willing to take a long-term perspective on things. you know, there are a number of things you can do in this environment. we find bank loans interesting for what you do with fixed income. but outside of that, just your steady, regular, run-of-the-mill, blue chip equities in domestic markets. and perhaps, at some point here as they get cheaper and cheaper, emerging markets again become very interesting given the valuations they've now sunk off to. >> that's an interesting comment, because we've seen real outflows in the emerging markets. you think that story has bottomed?

>> we think this story is a long-term story. we've recognized the weakness here as the flow of money created by this kind of pullback from central banks. at some point here, that valuation -- we think the valuation's already attractive for long-term buyers. we've been inching into it. we think the rest of the market will come around to that viewpoint somewhere within the next 12 to 18 months. >> rich, with the taper talk beginning to swell, as the patient is taken off the morphine, wouldn't it make sense for stocks to go lower? and if that's the case, will you buy them or wait for the correction to finish itself? >> bill, you raised an important point, about the patient coming off the morphine. there's always in every midcycle environment, a tug of war between the fed reversing policy and tighten monetary policy in whatever form you want to call tightening the monetary followsy, and the improvement in the fundamentals. that's what we're going through to you. the tug of war. the reason you're seeing the volatility that you're seeing is that earnings growth right now is not strong enough to have

offset the negative effects of rising rates or what people perceive to be the future course of rates. now, it's our view that profits are likely to begin to rebound, and, therefore, we remain relatively bullish. but i think that's all that's happening right now is that the fed is winning -- the rising interest rates are winning that tug of war right now, and you don't have the offset from positive earnings to pull back in the other way. you know, it's a question of whether or not you think that will happen. that's when mr. bernanke, i think, was saying, is if the tug of war goes too far in one direction or the other, they're going to change their policy. they're not stuck in one -- in one permanent policy here. if the tug of war begins to favor that interest rates are going too high, they'll buy more bonds, if it goes the other way, and the profits and fundamental growth gets too soon, then they'll start tightening policy. >> david, you said moments ago that you think this market is going to be rising. looking at this market over the long term. so what do you want to be exposed to? now that we've seen it become official, the fed is looking at

year-end as a possible time to start unwinding the quantitative easing and we're talking about midyear next year being totally out. so what groups do you think are sort of resistant or resilient in that environment? >> sure. well, we like the financials. with the improving economy, robust housing recovery and net interest margin that's going to be improving as rates do move higher. consumer discretionary, specifically retail stocks, industrials, cyclicals. as rich pointed to, i think that that economic data -- we have forward earnings -- forward earnings projections at record highs. we have this robust housing boom, an economy that's growing, anemic, but growing, and jobs that are improving. we'll see that data come through. and what happens with the fed ends up doing will be dependent on that data. so we hope that they do find that right transition, and under

that scenario, we think all those sectors do well. >> all right. gentlemen, thank you. we appreciate your thoughts on today's market action. we'll see you soon here. and, you know, we're watching the dow. of course, we keep pointing out to you the dow is down 170 points right now, off the lows. but equally important is the rise in the 10-year yield. that's now up to 2.35%. we haven't seen that since march of last year. >> and bernanke was asked a few times his plans. he said i have no info for you on my personal plans. but did president obama essentially fire ben bernanke on national television this week? that's what one former federal reserve governor says. so what happens now? coming up, glenn hubbard will tell us who can be in line to succeed bernanke next year and how his lame duck status impacts the market and the economy. stay with us. you've known?dest pern we gave people a sticker and had them show us. we learned a lot of us have known someone who's lived well into their 90s. and that's a great thing. but even though we're living longer,

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okay, two and a half minutes. you knew you were going to get fireworks in the afternoon after the fed announcement and during the dn news conference. here's your fireworks. very quiet day. typical fed day, before an announcement. and then it all hits the fan after the fed came out with the announcement, and made it a little clearer of their intentions for fed policy, maybe

beginning the tapering later this year into next year, and stop the tapering completely, or stop the bond purchases completely by the middle of next year. around this time next year. so we're going out on the lows of the day, the seventh consecutive 100-point move for the dow jones industrials average in the last few days. so the volatility continues here. we'll see what happens tomorrow. the 10-year yield. this is also very instructive. as they're selling stocks, you would think maybe they'd be buying bonds. no, they're selling bonds as well. look at the yield on the 10-year moving up. now 2.33. we hit 2.35 at one time just a few minutes ago, the highest level we've seen on the 10-year yield since march of last year. alan valdez what do you make of the market response today? stocks and bonds going lower. >> i spoke to some of my traders. some of the guys, you have triple coming up, and then end of the quarter, end of the half. so they're locking in their profits. they've had a great year in six months. >> okay. >> they're going away for july

and august, trade the volatilitiment but for the long-term positions, they're locking them in, because they think you will see tapering so why risk everything over the summer. they're getting out. >> very good point. you have all of the activity coming up at the end of the week here. do you think there will be a disruption -- enough of a disruption that we see a general correction, a 10% move lower as the fed becomes more clear about their intentions of tapering here? >> i think it depends on the market. i think if you see jobs numbers get substantially better, if you see improvement overall in the economy, i think it won't affect it that much. you will see great volatility. i don't think you'll see that great correction. i think bernanke's done a great job. he has his legacy coming up, and people think he wants to announce it in january. the economy in general is doing better. so it's the right time. >> that seems to be the case here. all right. very good. thank you very much. so the fireworks, and, in fact, the selling continues as we head towards the last few seconds of

trading. dow down 191 points, and we're going out on the lows of the session for the dow, and we'll see yields on the 10-year we've not seen in about 16 months. that is the first hour. what a day it's been. stick around. a lot more to come. and it is 4:00 on wall street. do you know where your money is? a is -- severe sell-off on wall street. welcome to the "closing bell." we're coming to you from the floor of the new york stock exchange where we're seeing the market swoon in the final minutes. the dow jones industrials average finishing at the lows of the day, and then some, in the final few minutes. down 205 points. the market selling off after ben bernanke said if the central bank could start tapering its economic stimulus measures later this year. look at how we're finishing the day on wall street, and in the last ten minutes of trading, severe selling coming in. do